Comment: A renewed appeal for Keystone

What’s going on with oil and energy these days? Last week, SNL Financial noted that, “Canada’s crude oil producers are looking to markets other than the U.S. to sell increased output amid delays in pipeline expansions, according to the president of the Canadian Association of Petroleum Producers. “In terms of growth potential, Keystone is obviously bogged down and everything behind Keystone in the queue is bogged down because the regulatory process won’t engage on those other projects until Keystone clears its hurdles one way or another,” David Collyer said. “The primary focus for Canadian producers, Canadian governments and Canadian pipeline companies is to look east and to look west.”

Flags of USA & Canada photo courtesy: Wikipedia

Canada is tired of waiting. What else? Besides the current frustration with our Canadian friends, there is another overlooked consequence stemming from the delays with the Keystone XL Pipeline project: high gas prices.

Although the pipeline have multi-year lead times, when a project of this magnitude has the green light to move ahead, it has an immediate effect on the markets by changing the traders’ expectations of future supply. Having more oil available in the marketplace contributes to lower prices for consumers. So when the project was delayed (repeatedly), the markets reacted accordingly.

While the White House continues to “figure out” how to balance two of his major constituencies (labor is pro-pipeline and environmental is anti-pipeline), Americans are feeling the price at the pump. But it doesn’t have to be this way.

According to Gordon Ritchie, vice chairman of RBC Capital Markets, Ritchie noted, “I’m at a loss to understand why the Americans wouldn’t approve the pipeline going down south because of the difference between the Brent price of oil — world price — and the North American combined price of WTI (West Texas Intermediate). “That $5 a barrel is really a subsidy by Canada to American consumers of gasoline and it works out to about $20 billion a year.”